ARK Invest’s Cathie Wood on which sectors could benefit from AI’s ‘transformation’

The promise of artificial intelligence remains a key driver of growth in tech stocks. Cathie Wood, CEO and CIO at ARK Invest, talks to MoneyTalk’s Greg Bonnell about the potential opportunities she sees and why the rally in big tech stocks is will likely continue.

Transcription

Greg Bonnell – U.S. markets continue to reach new highs in technology. AI has played a big part in that story. But can these tech stocks continue their AI-fueled rally? Joining us now to discuss is Cathie Wood, CEO and Chief Investment Officer at ARK Invest. Welcome back to the show. It’s great to have you here in person.

Cathie Wood – Thank you, Greg. Thank you for inviting me back.

Greg Bonnell – Okay, so we’re going to have a great conversation. Let’s just start for the viewers who might not be aware of your corporate strategy process, you focus on breakthrough innovation. What does that mean?

Cathie Wood – Disruptive innovation is technologically possible and transformative. So we’re focusing on five major platforms—robotics, energy storage, AI, blockchain, and multi-omics sequencing in the life sciences space. Those are the major platforms. They span 14 different technologies.

And what’s so interesting today is that AI is the biggest catalyst for the convergence between these technologies. So it’s creating some spectacular opportunities, like Tesla (TSLA, TSLA:CA). Tesla is the convergence of three platforms, robotics, autonomous vehicles, which are going to make our robots; energy storage, they’re going to be electric; and artificial intelligence, they’re going to be powered by AI.

Greg Bonnell – Is that the key when we think about AI? Because obviously the first wave was, you have GPUs, graphics processing units, which we thought were good for video games. It turned out they were pretty good at what Nvidia (NVDA, NVDA:CA) was doing for AI, but you realized that it was starting to combine a lot of what we thought were disparate groups?

Cathie Wood – Yes. AI is probably going to touch every industry and every company. And it doesn’t matter what sector it is. Right now, Nvidia is really the hardware phase of the AI ​​revolution. And they do some software, but historically they’ve been a hardware company. If this revolution is as big as we think it is, then we should see these GPUs being put to good use.

And I just gave you a good example. Autonomous technology is going to transform all kinds of transportation, not just cars, but trucks and drones. In the future, we’re going to see drone deliveries. It’s all the same convergence, and it’s all catalyzed by AI. The longer this goes, the more Nvidia can overtake itself. So we’ll see.

Greg Bonnell – Okay, moving forward. There are questions in the market after the rally that we’ve seen. We’re still making new highs in the S&P 500 (SPX), the Nasdaq, technology is a big part of that. People are starting to think, have I seen this before? Have I seen the dot-com era firsthand and is it happening again? What do we think of when people throw around phrases like return to relevance?

Cathie Wood – Well, it’s not like the tech and telecom bubble. The companies that are at the top of the indexes and are driving them are very, very profitable and very successful. So very different. If there’s any time we can compare it to, it’s the 1930s.

Now, this may sound surprising because it was the Great Depression, but if you look at the market concentration in the early days of the Great Depression, you know, unemployment was at 25%, GDP was down 30%. So the question became, are these companies going to survive or not? And it was binary. And so there was a huge concentration in a few names. AT&T (T) was at the top of the list. Telephony was just starting to enter the global economy.

And that concentration, what happened next? What happened next was we entered a strong bull market. It expanded, and the smaller caps, they may have been large, just not mega caps, large, mid, small, significantly outperformed the mega caps. And if interest rates come down, and we believe they will, we believe that will be a catalyst for that market to expand.

Greg Bonnell – It’s interesting. Let’s talk a little bit about interest rates, because obviously we’re going to get the inflation print. When we get the print, let’s try to figure out where Jerome Powell and the Fed’s head might be. Jerome Powell this week seemed to suggest, look, we recognize that if we keep rates too high for too long, we could hurt the economy. It looks like the door is opening wide open. If we see a cut this fall, maybe two before the end of the year from the Fed, depending on whether the market is right, what happens to some of these tech stocks, because they’ve already had a pretty significant rally?

Cathie Wood – Yes, but the run was very focused. We believe the market will broaden, and that’s how we position our strategies. We are much more diversified exposure to AI than Mag-6. I think Mag-7.

Greg Bonnell – I noticed you said six. I’m guessing Tesla returned to the group after what they experienced?

Cathie Wood – They kicked Tesla out last year, but now Tesla is in this year or is in the process of doing so. And I think they might invite them back. It’s the largest AI project in the world. And even Nvidia in their recent talks has said that the automotive sector is probably one of the biggest beneficiaries and drivers in the AI ​​space. We think it’s going to be very focused on a few winners and a winner-takes-most strategy.

So yes, we think that as interest rates come down, the market will expand and benefit the beneficiaries of AI that we have in our portfolio. A lot of people are very surprised to see so much in healthcare in the flagship strategy. And we believe that AI will help when it combines with sequencing technologies and gene editing technologies, that we’re really talking about treating disease, not treating symptoms, but treating disease. I can’t imagine a deeper application of AI. And so we have as much in the multi-omics space, as we call it, as we do in the pure technology measured by GIC.

Greg Bonnell – Interesting stuff. If we’re talking about inflation being moderate, central banks cutting, our central bank has already cut one. We’re looking at another one later this month. People are worried that inflation is going to be reignited. I think you, you think you have a view that a deflationary environment is more likely.

Cathie Wood – Yes. Yes. We actually see two ways this is going to happen. It’s already happening. If you listen to quarterly earnings reports, you listen to Walmart (WMT, WMT:CA)), Target (TGT), Costco (COST, COST:CA), Best Buy (BBY), you listen to Starbucks (SBUX, SBUX:CA), and Wendy’s (WEN), and McDonald’s (MCD), they’re all dropping prices because the consumer is under tremendous pressure. And it’s the middle-income consumer that’s capitulating right now and looking for these opportunities. So this is a cyclical phenomenon and this is a complete drop in prices, which is something that rarely happens when you think about it, right?

The second source of deflation is technology. So the five innovation platforms that I mentioned, they all follow learning curves, which are expressed in falling costs and then falling prices. And the five platforms are highly deflationary, but it’s good deflation. As costs and prices continue to come down, these new technologies will scale across more and more sectors and become mass-market opportunities.

So these price declines are related to the growth boom. So yes, we think there are deflationary forces on both fronts, cyclical and secular, and the surprises over the next few years will be on the low side of both inflation and interest rates.

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